1 The future of the Insurance Industry : the role of Regulations Dr. Moses Cheng Chairman, Insurance Authority, Hong Kong 11 May 2017 A Presentation to The Institute and Faculty of Actuaries Asia Conference 2017
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The future of the Insurance Industry :the role of Regulations
Dr. Moses ChengChairman, Insurance Authority, Hong Kong
11 May 2017
A Presentation to The Institute and Faculty of Actuaries Asia Conference 2017
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“ Whenever there is a whiff of companycorruption in the air, the French detain theircorporate elite for questioning, the Americanswonder when the sex angle is going to emergeand the British commission a new report on therole and effectiveness of non-executivedirectors”
-Michael Skapinker The Financial Times 16th March 2002
The PoliticiansQuickly demand the enactment of more rules and regulations
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Not that they would solve the problems or bring about Improvements
But they are seen to be doing
something
Would more regulations and stiffer penalty bring about a better Insurance Industry ?
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Establishment of the Insurance Authority
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Take over the role and
functions of OCI
Grow and develop the
Industry
Enhance the public
understanding and trust in the
Industry
Promote professionalism
and ethical conduct of
practitioners
It is essential to have effective laws and regulations
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The main purposes of the law• Establishing Standards
The law is a guidepost for minimally acceptable behavior in society. • Maintaining Order
The law—when enforced—provides order consistent with society’s guidelines.
• Resolving Disputes
Disputes are unavoidable in a society made of persons with different needs, wants, values, and views. The law provides a formal means for resolving disputes—the court system.
• Protecting Liberties and Rights
The constitutions and statutes provide for various liberties and rights. A purpose and function of the law is to protect these various liberties and rights from violations or unreasonable intrusions by persons, organizations, or government. 7
Laws (Rules and Regulations)
• "Law is the formal glue that holds fundamentally disorganized societies together.”
Thomas Hobbe (English philosopher born 1588)
• “Law is the cement of society”Glanville Williams – Learning the Law
Laws and regulations set the minimumstandards which everyone in the communitymust observe as the proper balance betweenself interests and the common good of thecommunity
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It leads to anarchy and chaos9
Laws and regulations• are essential to preserve peace and order of the community• But NOT the solutions to resolve the problems we face!• How can laws and regulations be expected to positively
bring about a better industry or community!10
OECD’s Report “Regulatory Policy and the Road to Sustainable Growth” 2010
• “The effectiveness of regulatory policy has been put to a severe test with the financial crisis and recent environmental disasters.
• In many countries, regulatory inflation continues to undermine the clarity of the law. Why have current regulatory institutions, tools and processes failed to deliver consistently “fit for purpose”, user-friendly regulations and regulatory frameworks?
• Can gaps in regulatory frameworks be filled without imposing unhelpful constraints on innovation and competitiveness?”
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Effectiveness of the laws and regulationsare dependent upon effectiveness of enforcement
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Friday, 13th
November, 2015
Manila, Philippines
Journey from Airport to Hotel
2 hours 20 min.(20 minutes)
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The Standard– a Filipino Newspaper
A failure in governance• The mammoth traffic jam in Metro Manila demonstrated government’s
helplessness in dealing with the urban problem. The five-hour traffic snarl was also a failure in governance on the part of local and national authorities.
• Building more roads and providing alternative transportation modes in the metropolis are the long-term solution to the traffic woes but these will take time. In the meantime, an effective traffic enforcement is needed and authorities so far have failed to control the situation.
• Cabinet Secretary Jose Rene Almendras suggested a “whole-of-government approach” involving the Public Works and Highways, Interior and Local Government and Transportation and Communications departments to ease traffic congestion.
• The Cabinet official should have added that basic enforcement of the traffic and public transportation regulations was the first step in addressing the traffic mess.
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Back in Hong Kong• Traffic jam is everywhere !
Result of traffic violations
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Would enacting tougher legislation / stiffer penalty solve our traffic jam problems ?
Laws without effective enforcement = NO LAWS16
Good Governanceis more than compliance with laws and regulations
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GovernancePolicies, processes, and structures used by an organization or government
• to direct and control its activities, • to achieve its objectives, and • to protect the interests of its diverse
stakeholder groups in a manner consistent with appropriate ethical standards.
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“Governance is essentially a function of leadership and direction within an organization; appropriate risk management and control over its activities (management); and the manner in which meaningful disclosure relating to its activities is made to shareholders and other stakeholders (public engagement).”
King Report II , 2002 South Africa
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My Model of Effective Governance
Governance
Laws(rules and
regulations)
Enforcement
Open & Transparent
Check and Balance(Accountability)
Fit for purpose Policy
Values Ethics
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In setting up the new Insurance Authority
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The New Insurance Authority
Take over the regulatory
functions of OCI
Establish a new licensing regime of
intermediaries
Grow and develop the insurance
industry together
Promote the proper image and public acceptance
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Market with good potential for
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Industry respected and well
received by the Public
Values
Professionalism
Ethical standards and
conduct
Risk based capital system – a sensible requirement
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OCI Industry
Healthy dialogue
A model and system that are tailored toHK circumstances and addressing
HK challenges
Values and Ethics
“ The board is the guardian of the ethical values of the company and must play a central role in understanding and monitoring of ethical risks. Beyond simple compliance with regulatory frameworks, it is up to the board and the executive management of the company to define the common values and principles that should govern the conduct of the company’s activities and the behavior of its employees and to ensure their implementation.”
Institut Francais des Administrateurs
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“ If managers are careless about basic things – telling the truth, respecting moral codes, proper professional conduct – who can believe them on other issues ? ”
- James L Hayes, former president, American Management Association
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Professionalism
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Good education foundation
Professional and Technical Training
Structured Continual Professional Development
Responsible conduct and attitude30
C A R E
Conflict of interestsWhen personal interests either influence, have the potential to influence, or are perceived to influence decision making, a conflict of interest situation results. Policy on conflict of interest explains the relevant principles and rules for preventing or managing conflicts of interest and how such principles and rules are to be implemented. 31
Unethical Behavior
The first, and the most characteristic of the sector, is exemplified by the mis-selling of complex derivatives (Goldman Sachs’s Abacus products or the customised swaps sold by Bankers Trust in the 1990s),
• the manipulation of sell-side research and IPOs, the misrepresentation of financial assets and liabilities (off balance sheet SIVs, inappropriate mark-to-model valuations or Lehman’s Repo 105s),
• LIBOR rate-fixing, • In all these cases and many others it is clear from the outside – and clear in
retrospect even from the inside – that the actions taken were wrong. • But they didn’t seem wrong to those engaged in them at the time. They were
perceived, perhaps, as stretching the rules, but not as breaking them, and it was the rules of the game, the technical norms, that were perceived as relevant, not the social and moral norms that underpinned them.
• Ethics just didn’t enter into the matter – and that was precisely the problem.
John Hendry, writer, teacher, academic pointed out :
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Close Collaboration
The Insurance Authority
The PractitionersThe Industry
The future growth and development of the Insurance Industry is dependent on ….
“…for any overall regulatory system to succeed while maintaining a healthy industry, there must be a balance of respect and cooperation between the two (external regulation and
self regulation)”Michael Somerville
“Future of Insurance Regulations in Hong Kong”
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Walk the talk and no compromise
• Honesty• Law Abiding• Fair• Respect for others
& diverse views• Trust
Integrity
• Environment• Community• Needs of others
Care • Hard work• Perseverance• Embracing
change and technology
Diligence
•Teamwork•Quality in products &
services•Innovation •Public engagement
Collaboration
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